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On December 27, 2020, a new $900 billion Coronavirus relief bill was signed into law by the President. The bill includes updates to the Paycheck Protection Program, commonly referred to as “PPP.” The PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. On Monday, February 22nd the White House announced several reforms to the PPP Program aimed at targeting funds to the smallest businesses and those that have been left behind in previous relief efforts. 

The key reforms are as follows: 

14-Day Exclusivity Period 

From February 24 – March 10 only businesses with fewer than 20 employees can apply for PPP. 

Revisions of Loan Calculation Formula

The loan calculation formula for sole proprietors, independent contractors, and self-employed individuals will be revised to offer more relief. Additionally, $1 billion will be set aside for businesses in this category without employees located in low-and moderate-income areas.

Removal of Restrictions on Eligibility

Businesses with at least 20% owned by individuals who have committed a felony within the last year (except for financial-assistance related fraud) are now eligible for PPP, unless the applicant or owner is incarcerated at the time of the application.

  • Restrictions on eligibility for businesses with at least 20% owned by individuals who are delinquent on federal student loans will be removed

Clarification of Non-Citizen, Lawful U.S Resident Eligibility

The SBA will issue clarifying guidance that holders of Individual Taxpayer Identification Numbers (“ITINs”) may access PPP if otherwise eligible

What’s So Great About PPP?

As small business owners, most Sola professionals are eligible for PPP. The advantage of PPP is that much, and perhaps all, of the loan amount will be forgiven if the loan is used in certain ways. In other words, if you use the PPP money as the law specifies, then you do not have to pay the money back. 

How Do I Apply for a PPP Loan?

You can apply through any federally insured bank or credit union. Here is a list by state of PPP lenders that the SBA has published. The lender can walk you through the standardized application process.

What if I already got a PPP loan earlier in 2020?

A second draw PPP loan is available to eligible businesses who have previously received an original PPP loan and meet certain requirements, which include:

  • Having used or will use all funds from their first PPP loan
  • Showing a reduction in gross receipts of 25% or more during any quarter in 2020 when compared to that same quarter in 2019

How Much Money Can I Get Under PPP?

For both your first and second PPP loans, the maximum amount you can borrow is generally 2.5 times your average monthly payroll cost in a 12-month period. We know many of our Sola professionals do not have employees or payroll like other larger businesses. In that case, the PPP loan is instead based on your 2019 net profit (as reported on your 2019 tax return) divided by 12. This monthly “average” net profit is then multiplied by 2.5 to equal the PPP loan amount. In essence, the PPP loan should be roughly ten weeks’ worth of your 2019 net profit.

How Do I Get Loan Forgiveness Under PPP?

The loan forgiveness process has been simplified for first-time borrowers and second draw PPP loans of up to $150,000. In this case, you only have to complete a certification to be established by the SBA, which includes:

  • Describing the number of employees the employer retained
  • Estimating the amount of the loan spent on payroll costs
  • Listing the total loan value

How Would I Apply for a Second Draw PPP Loan?

For loans up to $150,000, you'll need to submit a certification with your loan application attesting that your business meets the revenue loss requirements (25% or more reduction in gross receipts during any quarter in 2020 when compared to that same quarter in 2019). However, you will be required to prove this 25% reduction using your financial records before applying for loan forgiveness.

What Are the Requirements for How PPP Funds Can Be Used?

PPP funds must be used 60% for payroll costs and 40% for non-payroll expenses. Non-payroll expenses can include your rent (such as studio rent), expenses related to business software used to help your business during this time (such as SolaGenius), and costs related to the purchase of Personal Protective Equipment. 

Applicants must apply by March 31, 2021, with the goal of businesses using these funds to keep their business open and retain their employees through this economic recession.

(Photo by Katie Harp on Unsplash)

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